Senate committees approve step‑in agreement bill to backstop payments to independent power producers

Joint Senate committees voted to pass SB1501, a bill that would allow the state to provide payment assurance mechanisms — often called ‘step‑in’ agreements — to support independent power producers (IPPs) contracted to sell energy to Hawaiian Electric. Committees adopted a suite of amendments to protect the state and clarify operations before advancing the measure.

Why it matters: Witnesses said HECO’s current non‑investment grade credit rating makes financing new renewable projects difficult and can lead to higher costs or project cancellations. IPPs and developers testified that clear state assurance is necessary for lenders to underwrite multi‑decade power purchase agreements at reasonable rates. The bill’s supporters argued a step‑in framework protects ratepayers from higher long‑term project costs by preserving competitive procurement and lower financing costs.

Rebecca Day of Hawaiian Electric testified in strong support and submitted proposed amendments she said would strengthen state protections and ensure payment flows to IPPs. She said SB1501 is “crucial for our customers and for the ability to develop new renewable energy projects in Hawaii.” Developers and financiers including Plus Power, Amaresco and AES said the mechanism is critical to preserving existing contracts, unlocking stage‑3 procurement projects and securing future investment.

The bill includes a reserve fee proposal that would collect a small upfront amount from customers to cover temporary shortfalls for a defined set of covered PPAs; HECO estimated the fee would be modest and time‑limited (committees discussed a 29‑month window for the reserve fee tied to specific procurements). HECO also explained the reserve fee covers under‑recovery risk that can reach several percentage points on a monthly basis and that the fee is intended to be a cheaper option for customers than having IPPs bid substantially higher prices to reflect financing risk.

Committee amendments taken at the hearing included language clarifying that the state would not have an unconditional obligation if a trust or backstop fund were depleted, strengthened language to ensure prompt payment or termination payment obligations, and adoption of industry‑suggested clarifications (including AES‑proposed language) to preserve prompt payments to IPPs if HECO’s PPA is terminated during bankruptcy. Lawmakers defected the effective date in committee documents to allow additional technical work.

Outcome: Committees voted to pass SB1501 with amendments. Proponents said the bill will allow planned renewable procurements to proceed and protect ratepayers from larger price increases that could result if projects become unfinanceable; critics urged stronger state protections and careful drafting to avoid open fiscal exposure.